Similar to other types of investments, there are potential risks in the business of currency trading. They are typified as sovereign, interest and exchange rate risks. If you are decided to get into this game, it is vital that you must be familiar with the plus and minus points. Otherwise, you will not find yourself in a win- win situation. The best way to be a winner and not a loser is to know how to play it by heart. This means studying, learning, training, practicing and simulating before you actually become a player. Some professional traders enter a transaction only if they have the chances of making 3 times more than the funds they are risking. It is one key secret to winning in this game. Give yourself a 2:1, 3:1 or 4:1 reward to risk ratio.
One way of learning is to know stories of losers and determine the causes. Another profitable way is to study the testimonials of winners and how they do it. When you are ready and committed, another important fact is to bear in mind that each currency trading transaction has its own inherent risk. Political uncertainties and other variable factors affect currency exchange rates. You should always find time to look into the positive and negative angles.
Unlike the United States investors who enjoy protection from different government and quasi-government and private regulatory agencies, some forex markets do not have the same kind of safety net. As a wise trader, you have to weigh the transaction's pros and cons carefully. One variable is government intervention and another is currency devaluation. When this happens, it will adversely affect the value of financial instruments. And this is a matter which is outside of the perimeter of control.
Other risk factors involve any negative development relative to the social, economic and political situation of a nation. General market volatility is an inherent risk in the foreign currency trading. Another risk is the management of leveraged currency deals. This is a system of borrowing funds against your minimal capital investment. The risk of losing in a trade is high and your potential for winning a lot of money is likewise the same. Leveraged trading margins vary from 50:1 and can rise up to 20:1 which means you can manage $2 million with only a $10,000 start up investment. If you are not well versed and experienced in this area, the risk of a substantial loss is quite high. This is a very high leveraging risk and it can be suicidal.
Lack of knowhow in risk management is also a big factor. You will definitely lose money if you do not study and learn systematic currency trading risk management. If you just play on the basis of determining how much you are ready to lose in every trade, you are playing like a casino player. It is not investing but gambling. What is important in order for you not to lose your shirt is to know how to manage your total trading account money.
Another currency trading risk is undercapitalization. It is a big mistake to enter forex trading with the wrong capital. If you do not have at least $50k risk capital that you have accepted to lose anytime, then don't play this game. Otherwise, you will end up frustrated and broken hearted and that is not good for your cardiovascular system.
Take your time. Study the rules of the game; follow how professional traders do their work online thru several blog posts. Enroll in good forex courses. When you are ready with the right capital, skills and proper disposition that is the perfect timing! Timing is everything. So, don't get too much excited in getting right away into this forex business just because of what you hear about some beginners who are already doing good and making a killing! Play it smart and minimize your currency trading risk!
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